2017/18 Resource Allocation Methodology

The purpose of this page is to provide an overview of the process and principles employed in the university’s resource allocation methodology for the 2017/18 fiscal year.

Background

The University of Saskatchewan has transitioned to a responsibility centre management (RCM) budget model informed by our internally developed Transparent Activity-Based Budget System (TABBS). The transition to RCM has been underway since 2008. It represents a determined effort to establish the revenues and costs associated with all academic programs and to vest responsibility for the management of these programs in the hands of deans and directors. An extensive consultation process, stretching over a number of years, was used in establishing the key drivers for TABBS.

Under RCM, revenue is attributed to the budgetary units responsible for its generation. The expenses involved in operating the university are allocated against these revenues, with each revenue centre responsible for paying its share of the costs. Responsibility for managing budgets is located at the college or unit level. In institutions that have adopted RCM, the result has a better understanding of costs, more financial stewardship at the college level and a heightened degree of transparency and accountability.

There are two key challenges in implementing RCM. The first key challenge of RCM is how to empower colleges and units to manage their finances and pursue their own plans while providing senior administration with sufficient oversight authority to ensure alignment of unit plans with the priorities of the university as a whole. The second is to collect and employ the data that drive the TABBS model. There are five major revenue drivers:

1) full load equivalent

2) student headcount

3) qualifications

4) research revenue

5) active researchers

These represent activity levels and, along with cost attributions, distinguish colleges and schools from one another. Data have been collected for a number of years to ensure that the results are not overly influenced by particular upward or downward spikes in activity.

RCM has been introduced to the University of Saskatchewan at time of declining provincial government investment, with a 5.6 per cent reduction announced for 2017/18. Since the TABBS model is premised on assessing the different revenues and costs of programs, it was unlikely that it would advise an across-the-board reduction to all units. In addition, and independent of TABBS, it was clear that some units had greater financial capacity than others to absorb a reduction in support from the operating budget. Finally, some allowance had to be made for strategic considerations. The major strategic consideration for the 2017/18 budget has been the minimization of the overall harm to the institution. That meant that even though TABBS dictated a larger differentiation among colleges and schools, funds were redeployed to reduce the amount of variation TABBS required. Only so much differentiation could be absorbed at one time. Besides, certain units, including the College of Medicine, because of accreditation requirements, and the Western College of Veterinary Medicine, because of the interprovincial funding agreement, were not eligible for further reductions.

Determining the Allocations

Revenue Centres

Because the size of the provincial grant reduction was the largest since the Great Depression, it was not thought wise to pass the reduction on to academic units all in one year. This conclusion implied a central deficit and consideration of the size of the deficit that could be absorbed without imperilling the university’s financial situation. The next step was to determine how much financial capacity each of the colleges and schools actually possessed. Financial capacity was calculated using three factors: (1) college or unit financial reserves, excluding designated funds; (2) relative size of the college or units; and (3) college or unit three-year trend of operating fund surpluses/deficits. It must be acknowledged that taking financial capacity into account effectively penalized those units with multiple revenue sources and prudent management, but given that the university was similarly penalized, we had little choice but to ask those with the most resources to make an extraordinary contribution. The university’s financial reserves policy indicates that the lower and upper limits for the undesignated financial reserve should be 1.5 per cent and 6 per cent, respectively, of the unit’s total annual expenditures. As of April 30, 2016, with one exception, all colleges and schools were above the upper limit, with the highest being 28.6 per cent. In other words, nearly all had some capacity to absorb a reduction in the short term.

Having adjusted the starting points for the 2017/18 TABBS model, using the activity-based metrics described above, was then used to allocate 92 per cent of the anticipated provincial operating grant. The result was differential allocations, several of them quite substantial. The remaining 8 per cent was strategically allocated based on the following principles:

Reduce the variance in differentials produced by TABBS and the financial capacity adjustments.

Allocate resources in a manner that would cause the least amount of harm collectively to the institution.

No college or unit to receive a positive increase from the prior year (2016/17) allocation.

Hold the three interdisciplinary schools, given their size, maturity, and mandate to offer only graduate courses, to a 0 per cent change in envelope.

Continue to channel targeted funds to the Western College of Veterinary Medicine and the College of Medicine.

Allocate resources to minimize year-over-year variance.

Support Centres and Central Funds

With regard to support centres, given their limited ability to generate alternative funding, and given reductions in operating costs taken between 2014/15 and 2015/16 (e.g. elimination of fee-for-service and workforce adjustments eliminating nearly 220 positions), support centres will see funding reductions of, on average, 3 per cent. Total allocations to central funds for 2017/18 will decrease by 4 per cent from 2016/17 levels. Central funds are used to administer institutional expenses such as utilities, technology licenses, benefits under collective agreements that are unrelated to salaries, library acquisitions, and operating budget contributions to student aid and capital renewal.

Strategic Funds

Since the University of Saskatchewan’s first planning cycle in the early 2000’s an academic priorities fund has been maintained to allow investment in strategic initiatives that would benefit the university as a whole. This strategic funding is being reduced by five per cent overall with 30 per cent reduction to the academic priorities fund in 2017/18. Part of the strategic envelope has been dedicated to strategic investment in Indigenous and international activities while the remainder is for general strategic priorities. We anticipate that the strategic funds will be fully expended on current commitments and obligations. In the event that money has not been committed by year-end to those activities it will be reclaimed for the central operating reserve and to support transition costs.

Resource Allocation Results

Transition Support

To help mitigate all of the reductions outlined above, the Board will be asked to consider transition programs and changes in management practices. We will look for alternative revenue sources and for opportunities to reduce our costs. The campus community will be informed over the next several months as progress is made in addressing this budget shortfall.